Will my debt stop me getting a loan?
How existing debt and your credit history affect a new application, and how to improve your odds.
This guide helps you
- Understand how lenders assess your debt and history
- See which factors weigh on a loan application
- Learn practical steps to improve your position
- Know that being declined is not permanent
- Find free help before taking on more credit
6 min
What's happening
When you apply for a loan, lenders look at your credit report, your income and expenses, and your existing debts. They are required to lend responsibly, so they assess whether you can repay without hardship. Existing debt, missed payments, defaults and a string of recent applications can all make approval harder.
Having debt does not automatically rule you out, but it affects how much you can borrow and on what terms.
What lenders look at
- Your repayment history and any defaults.
- Your current debts and required repayments.
- Your income relative to your commitments.
- How many recent credit enquiries you have made.
Step by step
- Check your credit report for free before applying, and fix any errors.
- Reduce or consolidate existing debt where it makes sense.
- Avoid making several applications close together.
- Keep repayments on time to build a positive history.
- If you are struggling, seek free advice before adding more debt.
Watch out for
Each application can leave an enquiry on your file, and many enquiries in a short time can look like distress to lenders. Avoid 'quick fix' lenders charging very high fees, and steer clear of paid 'credit repair' firms promising to make you loan-ready, as they cannot remove accurate listings. Free help is available.
Where to get free help
If debt is making borrowing hard, a financial counsellor on the National Debt Helpline (1800 007 007) can help you weigh your options for free, including hardship arrangements. See Merion Help for general guidance and the directory of bodies for support services.
Key takeaways
- Debt affects how much you can borrow, but is not always a blocker.
- Lenders weigh history, current debts, income and recent enquiries.
- Fixing errors and spacing out applications can help.
- Free advice beats high-fee 'quick fix' lenders or paid repair firms.
Frequently asked questions
Does having a debt mean I will be refused?
Not necessarily. Lenders look at the whole picture, including income and repayment history. Debt may reduce how much you can borrow rather than block you outright.
Do loan applications hurt my file?
Each application can create an enquiry, and several in a short time can concern lenders. Spacing out applications generally helps.
I was declined. Is that permanent?
No. A decline is a snapshot. Improving your history, reducing debt and fixing errors can change the outcome later.
This is general information, not legal or financial advice. Your situation is unique and rules can vary by state and over time — for advice on your circumstances, speak to a free financial counsellor (National Debt Helpline 1800 007 007) or get legal help.
Know your options, know your rights
A free, plain-English guide to dealing with debt in Australia — and the people who can help.